10In early October, Kingsoft Software3888.HK) disclosed an 'Insider Information Announcement' stating that due to the sluggish stock price of Kingsoft Cloud and recent financial performance, the company will make provisions for impairment on its investment in Kingsoft Cloud. Although the specific amount has not been determined, it is recommended that the pre-tax provision amount be approximately RMB56Yuan to65100 million yuan.
As a result, there has been much discussion about the current survival status of cloud service providers. What is the future for small and medium-sized cloud service providers? How will the competitive landscape among the top three cloud service companies evolve? Will operators emerge as the new leaders and replace the top three in the industry? What other changes will occur in the Chinese cloud service market? Frost & SullivanFrost & SullivanLi Qing, Director of Frost & Sullivan Greater China, was interviewed by Economic Observer to discuss the above topics.
Economic Observer
What's going on with cloud service providers?
10In early October, Kingsoft (3888.HK) disclosed an 'Insider Information Announcement' stating that due to the sluggish stock price of Kingsoft Cloud and recent financial performance, the company will make provisions for impairment on its investment in Kingsoft Cloud. Although the specific amount has not been determined, it is recommended that the pre-tax provision amount be approximately RMB56Yuan to65100 million yuan.
According to our reporter's understanding, Kingsoft Software is the largest shareholder of Kingsoft Cloud, and Kingsoft Cloud was established in2020year5The company is listed on NASDAQ and is the first independent cloud service provider in China to go public on the US stock market, with a market value of2021It was close at the beginning of the year150billion dollars.
10month20Today, the latest market value of Kingsoft Cloud has fallen to5.74billion dollars.
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Industry growth rate has slowed significantly
For a moment, there were many discussions about the current survival status of cloud service providers. Some believe that the Matthew effect in the cloud service industry is too pronounced, and the living space for small and medium-sized service providers will be further compressed. However, it is worth noting that Kingsoft Cloud is not an obscure small provider. According to the report from Frost & Sullivan,2021In [year], Kingsoft Cloud ranked fourth in revenue among Chinese cloud service providers.
Some are also concerned about the financial condition of cloud service providers. Currently, among Chinese cloud service providers, only Alibaba's cloud business has announced profitability. As for Kingsoft Cloud,2021Ninghua Jinshan Cloud incurred losses15.91yuan,2022Loss in the first quarter of the year5.54yuan,2021year and2022The loss amounts in the first quarter of each year expanded year-on-year.
If time could be rewound a few years ago, cloud services were in high demand. Since2018Since the beginning of this year, China has replaced the EU as the world's second-largest cloud service market after the US. To this day, some industry insiders still remember2019Around 2014, the Chinese cloud service market was in full swing: 'Everyone rushed in and took over the business, vying for government contracts that could bring in many vendors as general contractors.' At that time, leading companies in the industry were actively investing in building data centers domestically, with an investment in a single data center often reaching hundreds of billions.
Of course, cloud services have their promising aspects. The digital wave sweeping across the globe is almost irreversible, compared to traditionalITThe model of cloud computing allows users to quickly and conveniently access a configurable pool of computing resources through online interaction with cloud service providers. Users can retrieve various resources such as computing, storage, and applications as needed and pay by usage. This makes the cloud service model economical, agile, and scalable. There are mainly three models of cloud services:IaaS(IaaS),PaaS(PaaS),SaaS(Software as a Service). FromIaaSreachPaaSthen toSaaS, the burden that users need to bearITWork is getting easier and easier.
However, currently, the growth rate of the cloud service market is slowing down significantly. According to a report by Frost & Sullivan,2018In the year, revenue of China's cloud service market increased by approximately44%,2019Year-end2021The growth rate for the year fell at33%till37%interval.
Leading companies in the industry have long been aware of these changes and are 'shifting gears forward'. Alibaba9988.HKThe latest quarterly report shows that as of2022year6month30day3Within the month, the revenue of the cloud business segment was176.85Yuan billion (Alibaba Cloud's cloud business division consists of Alibaba Cloud and DingTalk), a year-on-year increase only10%far lower than2021Same period of the previous year29%,2020Same period of the previous year59%growth rate.
Alibaba introduced that the revenue growth of its cloud business division was mainly driven by non-internet industries such as finance, public services, and telecommunications. An important reason for the significant slowdown in revenue growth at the Alibaba Cloud business division is that ByteDance has gradually stopped using Alibaba's overseas cloud services in international operations. At the same time, cloud revenue from the online education industry has decreased, as well as reduced customer demand in other internet sectors.
Tencent Holdings0700.HK) which dates back even earlier2021In the annual report, when introducing cloud services, it is stated that priority can be given to expansionSaaSThe scale of the business, but without pursuing significant revenue growth,IaaSandPaaSIt is necessary to reset the focus on development, shifting from simply pursuing income growth to creating value for customers and achieving high-quality development.
An industry insider told the Economic Observer reporter that in the past two or three years, what he has heard enterprises in the industry talk about most is the pursuit of business health, which is different from the aggressive expansion before the COVID-19 pandemic.
In addition, the emergence of the 'National Cloud' concept has added uncertainty to the competitive landscape of the cloud service market.2021In 2021, despite the slowdown in growth rates of Alibaba Cloud and Tencent Cloud businesses, China Telecom's Tianyi Cloud and China Mobile's MEC (Mobile Enterprise Cloud) revenues doubled directly.
So, as the wave of cloud computing develops to its current state, what will be the future for small and medium-sized cloud service providers? How will the competitive landscape among the top three cloud service providers evolve? Will operators' clouds catch up and replace the top three in the industry? What other changes will occur in the Chinese cloud service market?
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The Future of SMBs
The drag on Jinshan Software's profits by the stock price and financial performance of Kingsoft Cloud has directly triggered an external review of the prospects of small and medium-sized cloud service providers. However, in fact, the current industry concentration in the cloud service market is not low.
According to the report from Frost & Sullivan,2021Among Chinese cloud service providers in 2023, Alibaba ranked first (market share of24.7%), the second is Tencent (market share is11.1%), third is Huawei (market share of6.9%), the fourth is Kingsoft Cloud (market share is3.1%), fifth is China Telecom (market share is3.0%), the market share of the top five enterprises is nearly49%Among the top five, some only provideIaaSandPaaSServices, such as Huawei, some provide all three service modes, while others like Tencent do so.
And where heavy capital investment is requiredIaaSLayers, with a higher industry concentration.IDCThe report shows,2021In the first half of the year, China's public cloudIaaSThe market share of the top five manufacturers in the market has reached77%.
Jinshan Cloud was established in2012year,2020In previous years, it once ranked among the top three public cloud internet service providers in China. Although its market share has been eroded to some extent, its revenue has been growing. Jinshan Cloud's financial data shows that2021In the year, its revenue increased by [X]% year-on-year37.9%,2022Year-on-year growth in the first quarter was nearly 20%.
Judging from the stock price trend of Kingsoft Cloud,2021year2Month is almost a watershed,2020year5Monthly listing to2021year2In January, the market value climbed, but then it tumbled all the way down.
Li Qing, director of Frost & Sullivan, analyzed to our reporter that the decline in Jinshan Cloud's stock price is due to performance reasons. Jinshan Cloud is particularly adept at the internet sector, where businesses naturally thrive on networked environments. Moving to the cloud or transitioning from one cloud to another tends to be more consistent with non-internet businesses, which was also a reason for the rapid growth of the cloud computing market in these areas at the beginning. The strong entry of JD.com and ByteDance in recent years has also brought significant changes to the cloud market landscape. In the past two years, the industry growth rate of internet cloud services has slowed down. However, the decline in Jinshan Cloud's stock price is largely related to the impact on Chinese concept stocks in the US stock market, in addition to business factors.
Several industry insiders also told reporters that the situation of Kingsoft Cloud does not mean that small and medium-sized cloud service providers will lose their space for survival. 'Small and medium-sized cloud service providers can target areas with strong customization attributes, such as niche industry clouds,' said Gu Huangliang, General Manager of the Security Operation and Maintenance Department at Suning Consumer Finance. Internet observer Guo Tao also suggested that small and medium-sized cloud service providers delve into vertical industries or scenarios to form differentiated competitive advantages, such as choosing emerging vertical fields like the metaverse and connected vehicles.
Others from leading cloud service providers in the industry believe that the key to survival for small and medium-sized cloud service providers is to establish their own core capabilities. They told reporters that in the early years, leading cloud service providers were keen on becoming general contractors for projects. After securing large orders with their brand recognition and financial strength, they would subcontract some tasks away. However, the completion results of outsourced vendors often fell short of expectations, ultimately leaving the general contractors bearing the burden. This has led to a decline in some leading vendors' enthusiasm for becoming general contractors. To change this situation, small vendors need to cultivate their internal strength.
"As long as small manufacturers can excel in a certain module, they can still find their place in outsourcing projects even if they don't receive large-scale projects," the person said.
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Li Qing pointed out to reporters, 'If you simply sell infrastructure resources, it's indeed difficult for small manufacturers. However, if they can develop cloud applications to solve practical problems, small manufacturers still have the potential for growth in niche markets.' She believes that compared toIaaSLayering, where cloud service providers build distinctive cloud products around applications in niche areas or industries, makes it easier to establish their competitive advantage.
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Top three enterprises in the industryPK
The competitive landscape among the top three providers in the cloud service industry, namely Alibaba, Tencent, and Huawei, has always been a topic of interest to the public.
In terms of service mode selection, the three vendors vary.10month11On the same day, Huawei Cloud made it clear to an Economic Observer reporter that Huawei Cloud does notSaaSfocusIaaSandPaaS, helping enterprises and customers quickly buildSaaSApplication, accelerationSaaSDevelopment has entered a golden decade.
Don'tSaaSHuawei Cloud andSaaSThe manufacturer and the partner have a cooperative symbiotic relationship.2021year5In Huawei Cloud's ecosystem summit in October, “Huawei Cloud Starlight Program2021Action ”Launch. Huawei Cloud's initiative this time will be joined by the first batch50homeSaaSPartners, jointly expand the industry market. EnterpriseSaaSHeadquartered in China, Kingdee International is a leading provider of cloud ERP solutions.0268.HK) is one of themSaaSpartner.
In fact, Kingdee International providesSaaSservices, as well as provisionPaaSServices, which have a close relationship with Huawei, this year5In [month], Kingdee International launched a human resource solution for large and super-large enterprises.SaaSCloud integrates Huawei's practices in human resource management. As for Kingdee International, which serves a large number of enterprises, to meet the needs of different enterprise clients, Kingdee InternationalIaaSIn addition to collaborating with Huawei, the company has also partnered with vendors such as Tencent, Alibaba, and Kingsoft Cloud.
Alibaba's cloud services are also given priority.IaaSandPaaSmode.2019year3In a recent Alibaba Cloud Summit, Zhang Jianfeng, President of Intelligent Cloud at Alibaba Cloud, said, "Alibaba Cloud doesn't do it itselfSaaS, so that everyone can do betterSaaS"However,2019year6In January, DingTalk, which has been around for about five years but has not gained much traction, joined Alibaba Cloud's Intelligent Business Group. Since then, Alibaba's cloud services have included both Alibaba Cloud and DingTalk, kicking off the prelude to Alibaba's "cloud-ding integration" strategy.
In the eyes of school teachers, students, and enterprise employees who started using DingTalk frequently after the epidemic, DingTalk is aSaaSApplication, just download and install to use. However, Alibaba is adding DingTalkPaaSbase color,2021year1In [month], DingTalk released a new version, announcing the evolution from a collaboration platform to a dual-platform for collaboration and application development. In Alibaba Cloud's intelligent system, DingTalk can be connected downstreamITInfrastructure, connecting to applicationsPaaSRole establishment.
Tencent's cloud business has chosenIaaS,PaaSandSaaSModel. In the eyes of industry insiders, this is very easy to understand. Tencent relies onQQStarting from scratch, dominating the social media app industry with WeChatQQBoth WeChat and Tencent are software products, considered applications. Tencent has a strong background in developing software and applications, and is familiar with the business models of software.
People close to Tencent told this reporter that Tencent now attaches great importance toSaaSservice.IaaSServices are a business with heavy asset investment and an area that Tencent was not very familiar with in the past. Most of Tencent's previous businesses relied on human resource input (behind which technology investment can also be seen as human resource expenditure), rather than fixed asset investment. Businesses that rely on human resources can be adjusted flexibly. For example, if the market cools down, personnel can be laid off, but once a data center is built, it is difficult to make adjustments. MoreoverITInfrastructure is already a relatively mature industry, and it is difficult for manufacturers to make significant differentiation among themselves.
However, the person also pointed out that currentlySaaSIn the service domain, there are two major problems that need to be solved urgently. One is that users' willingness to pay is not very strong, and the other is that it is difficult to find standardized application scenarios that can be widely promoted and replicated.
In non-internet industries, Tencent Cloud's business is currently focusing on identifying opportunities in the energy and manufacturing sectors. The energy sector is relatively more standardized, while the manufacturing sector is more complex. However, Tencent Cloud has an advantage in having many business scenarios. In individual production links, it is expected to achieve standardization and find large application scenarios, for example.AIQuality inspection.
2021year, Both Alibaba and Tencent's cloud businesses have been affected by the reduction in customer demand in the internet industry. A major impact on Alibaba has been the gradual discontinuation of ByteDance's international business from using Alibaba's overseas cloud services, as well as a significant decline in online education demand due to the 'Double Reduction' policy. For Tencent, in addition to the cooling of online education, its most lucrative gaming industry has also encountered difficulties due to issues with game licenses.2018In [year], China saw the first suspension of game publishing licenses, which lasted for as long as8After that month, although distribution resumed, the monthly amount issued decreased significantly.2021year8In January, the game's publishing license was suspended.2022year4Reissue after a month.
In contrast,2021In [year], Huawei Cloud's revenue growth rate was quite good, with a year-on-year increase of more than30%although2021In FY2021, Huawei Cloud's revenue was still lower than Tencent Cloud's, butIDCThe data shows,2021In the first half of the year, China's public cloudIaaSIn the market, Huawei Cloud has overtaken Tencent Cloud with a narrow margin to become the second-largest provider. The market share of Alibaba Cloud is38.6%Huawei Cloud is11.2%, Tencent Cloud is11.1%.
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Li Qing pointed out to our reporter: 'In recent years, the speed of cloud adoption in government affairs has accelerated, and Huawei has more experience in serving government and large enterprise clients.'
The aforementioned person close to Tencent told this reporter that the customer base has a relatively clear understanding of the advantages of the top three companies in the industry. For example, Alibaba's cloud services are favored by e-commerce customers, and its database capabilities are also outstanding.IDCReport, Alibaba Cloud2021China ranked first in the relational database market in China for [X] consecutive years.3Has ranked first in the public cloud market for consecutive years. And Tencent'sC2BTencent has a strong capability and is the preferred choice for those looking to build links, especially those that integrate with the WeChat ecosystem. Additionally, as the largest game developer in China and owner of Tencent Video, Tencent's cloud services are favored by the video and gaming industries. Huawei Cloud's team also has strong business capabilities and excels at dealing with the government.
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Opportunities in operator cloud?
A few years ago, internet cloud services often attracted the most attention, with both Alibaba and Kingsoft Cloud having disclosed in their annual reports that cloud service revenue had grown by more than50%The good times are here, however, the biggest threat to the top three companies in the industry in recent years has not come from within the internet cloud, but from operator clouds.
China Telecom601728.SH) disclosed in the performance report,2022In the first half of the year, the revenue of Tianyi Cloud reachedRenminbi281Yuan, a year-on-year increase100.8%.2021In [year], the revenue of Tianyi Cloud reached RMB279Yuan billion, doubling the amount.2022In the first three quarters of the year, Tianyi Cloud's revenue continued to double. Since2020After securing the top spot in the public cloud market for government affairs in China in 2019, China Telecom has maintained this position to date.
China Mobile600941.SH) shall be disclosed in the performance report,2022In the first half of the year, we signed more than3500One, driving revenue exceeds130Yuan, with central and state-owned enterprises exceeding1100one.2021In [year], China Mobile's industry cloud revenue reached RMB192Yuan, a year-on-year increase109.6%, self-developedIaaS,PaaS,SaaSproduct exceeds230model, introduce cooperationSaaSproduct exceeds2700model
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In Li Qing's view, 'the main battlefield for domestic cloud services will be operator clouds in the future,' while Alibaba, Tencent, and Huawei's cloud businesses' main battlefield will be overseas.
Li Qing believes that there are several situations that support her making this prediction. First, the cloud market in retail and internet industries has been fully exploited.2021In the coming years, government cloud and financial cloud will be the main market drivers. Operators with a central enterprise background have an advantage over private enterprises when securing government contracts due to their background; secondly, enterprises need capital support for digital transformation, and state-owned enterprises have stronger financial strength, as well as policy support and fiscal subsidies, making them more likely to prioritize operator clouds; thirdly, distributed clouds will become more popular in the future, as users always prefer nodes closer to them. Operators naturally have an advantage in this area, capable of deploying or optimizing on existing widely distributed network facilities; fourthly, cloud computing is ultimately a resource, and it is a very important one. It is not difficult to understand why the government hopes to control cloud computing in its own hands.
Li Qing saw that the construction of 'National Cloud' has gradually begun to take effect.2022year7In the month, the State-owned Assets Supervision and Administration Commission of the State Council held a promotion meeting for central enterprises to deepen specialized integration. The meeting mentioned that China Telecom will introduce strategic investors from multiple central enterprises to build an 'National Cloud' company.2022year7In January, at the 5th Digital China Construction Summit, the country's first state-owned asset supervision cloud service was officially launched. Led by China Telecom and participated in by multiple central enterprises such as CETC and Electronics Corporation of China, it is backed by significant support from the Chinese government.
Li Qing pointed out that in the future, operators' cloud becoming a leader in the domestic cloud service market does not mean that internet cloud has no market. In terms of application product development and iteration, technological innovation, and diversified services with deep market penetration, internet cloud still has its advantages.
However, in this round of interviews conducted by our reporter, some respondents held different views from Li Qing. For example, Guo Tao believes that the starting point of the 'National Cloud' represented by China Telecom is to solve the security and compliance issues of data migration to the cloud during the digital transformation of central state-owned enterprises. Although it may capture a portion of these customers, it will not fundamentally threaten the market positions of Alibaba, Huawei, and Tencent Cloud services.
At present, the top three companies may need to consider the challenge that the existing market space for cloud migration and use in the internet industry is shrinking.2022year4month to6In the month, the proportion of Alibaba's cloud business revenue from non-internet industries reached53%For the first time, it exceeded the proportion from the Internet industry.
In addition, in the US cloud service market, fromSaaSThe service has a high revenue proportion, coming fromIaaSThe proportion of service revenue is low, but in contrast, Frost & Sullivan's report shows that in the Chinese public cloud industry, fromIaaSThe revenue proportion from service mode is the highest.2021In the year, in the Chinese public cloud market,IaaSThe proportion of service revenue is61.3%,SaaSThe revenue proportion of the service is26%.
In the early days of cloud services, industry participants often could not launch highly competitive applications and were even confused about the applicable use cases for cloud services. It was normal to build infrastructure first, but in the future, it is necessary to enhance application-layer capabilities.
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Li Qing believes that the current involutionary and nanny-style business model of cloud services in China may affect the healthy development of the industry. 'Cloud products should be highly standardized, similar to leading foreign manufacturers.'AWSTheir cloud has achieved extreme standardization and modularization, enabling agile deployment and application for customers across various industries. However, currently, many industries in China still require a large amount of manpower for on-site operation and maintenance when adopting the cloud. Additionally, gray market competition and price wars among vendors can make the market overly dependent on services rather than products, hindering the development of cloud-based products.
Meanwhile, Chinese enterprisesITteam,ITThe capabilities are not strong enough, and there is a significant reliance on the cloud vendor's direct services. To some extent, this also exacerbates the situation where cloud market competition overly focuses on services rather than products, which needs to change.
The cloud service market in China is on the rise, and it's still uncertain who will succeed or fail.
*This article is reprinted from Economic Observer. Reporter: Li Huaqing Original title: The cloud service market is undergoing 'silent but significant changes' ">
